Firms Push Ahead with Full Mergers Despite Aussie Slowdown
The two firms’ different trajectories at the time gave Freehills an edge in merger talks, says one former Herbert Smith partner. “They were playing a very strong hand because they’d had at least three years of successful upward performance while Herbies had three years of downward performance,” he says.
But even then, the partner says, some at Herbert Smith saw that Australia’s boom, based on massive Chinese investment, was starting to wane. “What we were seeing at that stage was the 'China sneezes and Australia catches cold' scenario,” the partner says. “China slowing down meant less investment into Australia, and that meant less business [for law firms].”
Some Herbert Smith partners proposed that a combination with Freehills be undertaken through a Swiss verein structure, as King & Wood Mallesons and Norton Rose Fulbright had done, or even a looser deal similar to that between Linklaters and Allens. But the senior management of both Freehills and Herbert Smith only ever put full merger on the table, these partners say.
Former Freehills chief Gavin Bell, now co-head of the combined firm, dismisses the idea that there was widespread opposition to full integration and says most of the partners who left did so for other reasons. “The merger’s really been embraced, not just at partner level, but right across the organization,” he says.
Bell stresses that the advantages of having a single partnership in terms of encouraging lawyers to work together are paying off. He says partners are able to make decisions without worrying about different profit pools and that the results have already been positive for both sides. He cites the firm’s work advising China National Offshore Oil Corp. on its $1.93 billion investment in the Queensland Curtis liquefied natural gas project in May.
“I don’t think either firm would have won that on their own pre-merger,” he says.
Bell also thinks the current slowdown in Australia is temporary and won’t have a major impact on the firms working together. “Some of our markets were stronger two years ago than they have been in the last 12 months,” he says. But, “I don’t think the fundamental reasons for merger change because of a short-term downturn in the Australian economy.”
For both Ashurst and Herbert Smith, it was seen as important not just to enter the Australian market but to do so with a leading player. Ashurst, in particular, was a relative newcomer to the region compared to other U.K. firms, including Herbert Smith, and wanted to scale up quickly.
“Ashurst was not strong in the region and we concluded organic growth was too difficult,” says London-based senior partner Charlie Geffen. “Ashurst Australia brings a strong client base, a strong common law capability, very high quality people and scale to help with the investment cost.”
Herbert Smith made its move after a firmwide strategic review and amid fears that it would lose ground to rival U.K. firms like Clifford Chance, which entered the market via mergers with boutique firms in Sydney and Perth, and Allen & Overy, which opened its own offices with partners recruited mainly from Clayton Utz but also Freehills.